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With private equity fundraising having seen a downturn in H1
2022, Ropes & Gray partners Debra Lussier, Laurel FitzPatrick
and Bryan Hunkele and I examined – in this article – the driving forces behind this
slowdown and how sponsors and investors are pivoting their
strategies in light of shifting market dynamics.
According to Private Equity International‘s H1 2022
Fundraising Report, global private equity managers across private
capital asset classes raised US$337 billion in H1 2022, down 27%
from H1 2021 levels. What is causing this contraction?
The denominator effect. With public equities
falling throughout the year, some investors are finding that their
portfolios are over-allocated to private equity. This has caused
investors to pause and reassess their deployment plans.
Record-sized funds raised by blue-chip
managers. The high number of large funds closed this year,
including by blue-chip managers Advent International, KKR and The
Carlyle Group, means that LP allocations for 2022 are already
A decline in exits has caused a slowdown in
distributions from managers, leaving LPs with less cash to redeploy
for new investments.
As a result of this squeeze on LP capital, investors have been
pivoting toward larger, more established managers. According to
Pitchbook, funds targeting US$5 billion or more accounted for 58%
of capital raised in the U.S. private equity buyouts market in H1
2022. This has made securing LP attention and capital a challenge
for mid-market and emerging managers, which have had to bring
innovative and flexible fundraising structures to market to secure
The changing risk outlook and impact of rising interest rates
are also shaping the fundraising landscape from a strategy
perspective. Anecdotal evidence suggests that investor appetite is
increasing for strategies that are viewed as offering more
stability, such as private credit, infrastructure and real estate,
in an inflationary environment. Distressed debt is another emerging
Managers are also adjusting to working with larger groups of LPs
to fill increasingly larger funds and rising investor demand for
more bespoke reporting. Cultivating new relationships and bringing
new LPs into a fund are contributing to longer fundraising
timelines and making negotiations more complex, with the inclusion
of side letters becoming more commonplace.
In the end, appetite for private capital remains durable and
managers are still getting funded, even if it is taking longer than
in prior fundraising cycles. The window for new commitments may
open up again next year.
Originally published 31 August 2022
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